The US Stock market is in a material correction with the Dow down over 2,200 points since the early August high of 35,700, now at 33,449. The NASDAQ is down over 1,400 points from its high at 14,447 in mid-July, now at 13,023. Not yet the 10% for an official ‘correction’ but getting very close. Before this downside pressure is over during Q4/23, we expect the key US indices to fall >20%. Caveat Emptor!

Some of the positive and negative issues facing the US are:

• The stronger economic data (retail sales, durable goods orders) has increased the expectation that the Fed will keep rates ‘higher for longer’. The consensus is for one more Fed Funds rate hike in 2023 and then depending upon the progress on inflation, one in 2024, before the rates are kept flat until the data supports loosening the price of money. Some bank executives like Jamie Dimon of JP MorganChase have floated the worst case scenario of Fed rates rising another 200 BP to 7% to meet the Fed’s inflation target. 
• The probability of the US having a government shutdown on October 1st is rising as the intransigent House Republican right wing won’t support any deal that does not include significant spending cuts. The Senate is ready to deal but the House is not. To pass the needed legislation requires action in the next day or so. What I would like to know is do the members of Congress get paid if there is a shutdown? Maybe a bit of personal pain may get them to the table to get a deal. 
• The UAW strike is going to impact the US economy and we are already seeing some suppliers shutting down their plants due to parts shortages. 
• US Consumer Confidence has fallen for the fourth straight month. The recent sharp rise in gasoline prices will exacerbate this data in the coming months. Gasoline prices in California have risen to over US$7.00/gal in some parts of the state and are up over 50% from lows earlier this year. Fuel prices are a sensitive issue for consumers and likely will impact voter decisions. Not a positive for President Biden. 

For the rest of the world no new economic data for this report.

The war in Ukraine is seeing more escalations as one side hits the other. This is now spreading to daily drone attacks on Moscow and Crimea by Ukraine and the Black Sea Ukrainian export ports being blockaded and attacked by Russia. 

Some recent events: 

• Ukraine attacked the Russian Black Sea naval base and claimed killing 33 Russian officers including the base’s admiral, Viktor Sokolov. Russia says only two people were killed and they showed a video conference where the admiral was seen participating. Ukraine has admitted it is trying to cut off the head of the Russian snake and its leading war officials. They have had some success but so have the Russians in retaliation. This form of warfare will likely expand and start to include the political elite on both sides. 
• President Zelensky completed his tour of the US and Canada to keep the munitions and military and economic aid flowing. If the US tapers off this support due to right wing Republican obstinance, then they will not be able to continue their counteroffensive once the rainy season arrives or fund their day to day government expenses. US largesse keeps the Ukrainian economy functioning.  Speaker McCarthy did not let Zelensky have the opportunity to address Congress. 
• Ukraine is desperate to sell last year’s food crops before the current year is harvested and has been selling cheaply into western European countries now that the Black Sea is a war zone and exports have been stopped by the Russians. Poland, Hungary and Slovakia have embargoed Ukraine grains to protect their own farmers who were seeing grain prices plummet. Some like Poland are also threatening to hold off military supplies. With winter coming, some European countries are tired of the war. Elections to be held should be watched to see if the results show anti-Ukraine politicians winning. This would start the crack in overall support for Ukraine which would be a win for Russia. The one to watch is the Czech Republic where anti-government forces want an end to the pro-western government and an end of support for the war in Ukraine with war funds used to meet domestic challenges. 

Market Movement:  We have warned about a breach of the 33,600 level for the Dow (today at 33,449), which completes a topping formation for the Dow. A close below 32,600 would set up the waterfall decline phase to below 30,000. Stay patient with cash reserves and be ready to BUY at the next low risk entry point. Investors should consider taking profits in non-taxable accounts due to the sizable move in energy stocks over the last six months. Traders may take a more aggressive approach. We have harvested some of our currently held positions with very nice profits. We are however keeping core weightings in each name. Subscribers please check the SER Ownership releases to see what we have done via our partial harvesting. 

Once this correction has lowered stock prices and fear has returned to the markets over the next few months, be ready to buy the bargains that develop. As the general stock market declines we expect energy prices to back off and the Energy Bullish Percent Index to retreat back to below 10% and ring the bell for the next BUY window. The last BUY signal was in March and we added 14 new ideas to our Action BUY List. Many energy stocks are down from their 2022 highs, and many trade around Proved Developed Producing (PDP) Reserve valuations levels. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.